ValueClick's HiSpeed Media Business and Aptimus (APTM, VCLK)

Incentive marketing has been huge for advertisers over the last few years. But word on the street is that incentive marketing is declining. This presents a problem for incentive publishers, advertisers and CPA and Ad networks.

In cyberspace, incentive marketing (aka freebie sites) is when an advertiser offers the prospect of free prizes such as iPods and laptops in order for a sign-up. Here is an example from TheUseful -- if you want to look inside DO NOT use an email address you care about! While the model of freebie sites varies, in general the user enters the site and needs to navigate through, the “non-incentive" path, a survey that entices the user co-registration opportunities.

Q Interactive (formally Cool Savings) powers many of the co-registration offers for some of the big guns in this game such as TheUseful and HiSpeed Media, owned by ValueClick, Inc. (VCLK). You’ll see offers from well-respected advertisers such as Vonage, Sprint, BabyCenter, WalMart, and much more. Sometimes the radial button for the user defaults to "yes", so the user needs to opt out. Think for a second how this impacts the lead quality of people signing up for these offers.

Once the user makes it through the co-reg section, the second half of incentive sites consists of a series of offers that users need to sign up for in order to get the prize. Big brand advertisers Netflix, Inc. (NFLX), Discover, RealNetworks, Inc. (Nasdaq: RNWK), CitiCards, Stamps.com (STMP), AOL (Time Warner Inc.) (TWX) and others have relied on this path to drive a significant volume of customers. Advertisers know the customer quality is poor, but smart marketers just price the traffic at what it is worth because the volume going through these sites is hard for a marketer to ignore despite the brand damage from such a harsh marketing environment.

However, incentive marketing as we know it is coming to the end of its life cycle. People figured out that there weren't many free iPods. (There were some, mostly from Gratis which despite legal issues does deliver the goods and is bucking the trend by growing due to its international expansion.) The remaining super inexpensive media these sites depend on to drive volume is disappearing, due to market forces increasing media prices.

Aptimus (APTM) stated in its recent press release:

“2005 was a year of change for Aptimus as key steps were taken to create conditions for the company’s next phase of growth. These changes include:

-- A decision to walk away from unsustainable, low quality near-term revenue by substantially reducing the number of impressions generated on promotion-oriented publisher sites, again to improve overall lead quality for the company’s advertising clients.

What this means is that Aptimus is walking away from the incentive sites. They see the writing on the wall understand that incentive marketing is declining.

Now let’s look at the decline in traffic for RewardsGateway:

Finally, let’s look at Freeipods.com:

These examples illustrate the trend that people are quietly talking about in the industry, and give some evidence that incentive marketing is indeed declining. This is not good news for the companies that run these sites (such as ValueClick), advertisers that are dependant on these sites to produce a large steady stream of customers and for ad and CPA networks (such as Aptimus) that have counted on these sites as key publishers who can drive a huge volume of leads.

I’ll bet a year from now there won’t be much wind left in incentive marketing sales. The glimmer of hope is that smart online marketers consistently seem to morph their business models, so perhaps a replacement to the freebie sites is coming down the pike.